Tests of Scale Effects Predicted by the Dixit-Stiglitz Model

Xiaokai Yang and Yongsheng Zhang
(Monash University, Australia)

This version: December, 2001

Abstract: Following up the empirical works of Jones (1995a, b) that reject two classes of the major endogenous growth models: the AK models and R&D based model, the paper tests a major new trade model, the Dixit-Stiglitz model (1977), which predicts monotonically positive correlations between the average size of firms and the productivity or per capita real income, and between the average size of firms and population. The paper shows that the predictions in the Dixit-Stiglitz model are incompatible with the empirical evidence.
Keywords: Scale effect, Firm Size, the Dixit-Stiglitz Model
JEL classification: C22, F12, L11

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